Monday

WOOSTER -- The fees payday lenders charge are crippling some families, advocates say, and they want the Ohio General Assembly to pass legislation to protect consumers.

Peggy Daugherty of Wooster knows firsthand the benefits payday lenders afford and the consequences that come with it.

When Daugherty's daughter was sick a few years ago, the two made several trips to Cleveland to a medical facility. Sometimes, because of the scheduling of surgeries, they would stay in a hotel near the hospital.

The expenses of the trips and overnight stays took a toll on the two of them, who are both disabled. One time, when Daugherty needed to pay for car repairs, she visited a payday lender and borrowed $300.

She said she thought it was a good service, and still thinks it is, but something needs to be done to keep low-income people from getting trapped into loan after loan.

Because Daugherty was on disability and received only one check a month, she would immediately pay off the loan when she received her money. But a couple of weeks later, she found herself back at the lender seeking another loan to help her get through the month.

"That's how you get trapped," Daugherty said.

A friend helped her break free from that cycle of loans, Daugherty said. The friend made purchases on her credit card on behalf of Daugherty and used it to pay off the loans. At times, Daugherty said she had three and four loans outstanding.

"It would have caught up to me eventually," she said.

Advocates, like Pat O'Bryan of the Catholic Commission of Wayne, Holmes & Ashland Counties, and Jim Callen of Northeast Ohio Legal Services, are pushing state legislators to enact a law that would cap the interest rate payday lenders could charge.

O'Bryan and Callen formed the Tri-County Payday Lending Project to raise awareness, and the group is now part of the Ohio Coalition for Responsible Lending.

The coalition supports legislation by state Rep. Bill Batchelder, R-Medina. It would cap the annual percentage rate on payday loans at 36 percent; require better disclosure of loan terms, and allow no loan rollovers, no waivers of state or federal rights, no mandatory arbitration or obstacles to consumer action, no checks or other methods of access to financial accounts as security, no auto titles as security, no prepayment penalties and no allotments for repayment.

Batchelder said he has watched the development of payday loans and has talked with several families who have been impacted by the short-term loans. The legislation mirrors a federal law that was enacted to protect military families.

"It's an unbelievable product, but obviously there is some sort of need for it," Batchelder said. "It has a big market, and apparently it is pretty profitable."

The Ohio Association of Financial Service Centers opposes Batchelder's bill.

"It would put us out of business," said Darryl Dever, a lobbyist for the OAFSC. If the interest rate cap is put into place, payday lenders will not be able to operate, he said.

These lenders typically charge a $5 loan origination fee per every $50 borrowed and collect 5 percent interest, Dever said. It works out to be $15 per $100 borrowed.

Opponents say if the interest rate is calculated on an annual basis, the true rate is 391 percent. However, Dever said the APR in this case does not make sense.

"You are not borrowing it for a year," he said. "They are saying 391 percent because it is sensational.

"This is a unique product. People need it, use it and understand it. No one who borrows this money believes they are paying 391 percent."

Dever said it costs just as much money, if not more, to administer short-term loans, and traditional lenders do not offer the product.

"It's not in their business model," he said.

By putting a cap on the interest rate, payday operators would not be able to cover the costs of overhead, employees and rent.

The lenders prefer another bill, which was introduced by state Reps. Ross McGregor (R-Springfield) and Matt Lundy (D-Elyria). It allows for an extended repayment plan and limits fees for checks that bounce.

"This legislation provides consumers with additional options and safeguards they need to protect their financial well-being," McGregor said in a release. "It does not aim to put people out of business; rather, it requires payday lenders to follow specific rules so that consumers don't suffer."

"One puts us out of business, and the other gives some relief to the consumer," Dever said.

"This is obviously a big problem, and it needs to be tackled in several ways," said State Sen. Ron Amstutz (R-Wooster).

Legislation would be one option.

"The regulation approach is another thing worth considering, but we have to consider it very carefully," Amstutz said. "Whenever you intrude in the market, you have to be careful because it has unintended consequences."

State Rep. Jim Carmichael, R-Wooster, said he has signed onto the McGregor-Lundy bill.

"I think the rule's in place," Carmichael said. "If you want to borrow money and pay it back, you sign a form and you agree to do that. Is that any different than any other loan? ... I sign a paper and tell them that I am going to do that."

Carmichael said he had a visitor in his office who said she uses the payday services when she gets in a pinch from time to time and wants to see the industry continue.

"There is a need for this service, but I think what gets these people is the interest," Daugherty said. "If they could make it lower or within reason, it might be a better service.

"In my case, it was a revolving door. Your check only goes so far. You have to get the money somewhere."

Business and Wayne County government reporter Bobby Warren can be reached at (330) 287-1638 or e-mail bwarren@the-daily-record.com.

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